(WA; normal and abnormal discrete spoilage) Gary’s Tools manufactures one of its products in a two department process. A separate Work in Process Inventory account is maintained for each department, and the company uses a weighted average process costing system. The first department is Molding; the second is Grinding. At the end of production in Grinding, a quality inspection is made and then packaging is added. Overhead is applied in the Grinding Department on a machine hour basis. Production and cost data for the Grinding Department for August 2010 follow
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Production Data |
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Beginning WIP Inventory (percent complete: material, 0; labor, |
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30; overhead, 40) |
1,000 units |
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Transferred in from Molding |
50,800 units |
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Normal spoilage (found at the end of processing during quality control) |
650 units |
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Abnormal spoilage (found at end of processing during quality control) |
350 units |
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Ending WIP Inventory (percent complete: material, 0; labor, |
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40; overhead, 65) |
1,800 units |
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Transferred to finished goods |
? units |
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Cost Data |
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Beginning WIP Inventory |
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Transferred in |
$ 6,050 |
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Material (label and package) |
0 |
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Direct labor |
325 |
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Overhead |
980 |
$ 7,355 |
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Current period |
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Transferred in |
$149,350 |
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Material (label and package) |
12,250 |
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Direct labor |
23,767 |
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Overhead |
50,190 |
235,557 |
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Total cost to account for |
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$242,912 |
a. Prepare the August cost of production report for the Grinding Department. Gary’s Tools assigns the cost of normal spoilage only to the products that are transferred out. As such, the company extends both the normal and abnormal spoilage units in the EUP schedule to all cost components except packaging (as packaging is not added to spoiled units). The cost of normal spoilage is attached to the units transferred to Finished Goods Inventory; the cost of abnormal spoilage is considered a period loss.
b. Prepare the journal entry to dispose of the cost of abnormal spoilage.